Court Declares Lien Against Condo Unit Invalid

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In a recent case, Pearson v. CCC No.178, the court considered whether a condominium corporation could recover as common expenses the legal costs it incurred for legal advice related to the defence of Small Claims Court actions commenced by an owner.

The unit owner had commenced three Small Claims Court actions to enforce compliance with the declaration by the condominium corporation relating to landscaping and financial disclosure. All of the actions were dismissed without any costs awarded on the basis that Section 134 of the Condominium Act requires that an application for a compliance order must be brought in the Superior Court.

Although the corporation was self-represented in the Small Claims Court actions, it incurred legal expenses in the amount of $6,501.95 for advice related to its defence. When the owner did not pay this amount, the corporation registered a certificate of lien against the owner’s unit. The owner took the position that the corporation could not recover these legal costs by registering a lien as there were no costs awarded by the court in the Small Claims Court actions, and there was no provision in the Act or the declaration that permitted this.

The court agreed with the unit owner. The judge said that the language of the declaration was to be strictly construed in a manner consistent with the plain and ordinary meaning of the words. In this case, the declaration clearly stated that legal expenses incurred by the corporation in taking an action against an owner could be recovered in the same manner as common expenses. There was nothing in the declaration that permitted the condo corporation to claim indemnification for its legal costs in defending an action.

Section 134(5) of the Act provides that if a corporation obtains an order awarding damages or costs against an owner, then the damages and costs and any additional costs in obtaining the order can be recovered as common expenses. Where no award of costs is made by the Superior Court, this section is not applicable.

Not only was the lien declared invalid, but the corporation was ordered to pay costs related to this action declaring the lien invalid. Although the unit owner claimed costs of $9,361.00, the court only awarded costs of $5,000.00 plus disbursements and HST, as the owner’s Small Claims Court actions were all dismissed. However, these unsuccessful court applications by one owner ultimately ended up costing all of the unit owners over $20,000.00 in legal fees!

If a corporation hopes to recover legal costs by way of a lien, the corporation should be carefully reviewing its declaration with its legal counsel to determine in what circumstances it is permitted to do this.